The Hindu Business Line : Investors waiting for index levels to rise for redemption?

Risk, like love, finds a way of spreading itself, a fact that equity fund investors now know for sure. Net asset values have plummeted and there is talk that redemption requests are coming in thick and fast.

Before you conclusively dub the latest trend as the end of the three-year bull run (which started in early-to-mid 2003), consider this: Equity funds have done reasonably well, delivering about 55-58 per cent on an average in the past three years.

So, isn't this an excellent time to call it quits, leaving perhaps only the SIPs untouched? Isn't the sudden bearishness a good lesson in the sense that it has humbled even the best equity portfolios?

Fund circles, which agree that investors may now feel tempted to get out, mostly think that the Indian market is more fairly valued at the moment.

The broad themes that have guided inflows into India are still not disturbed. Domestic demand-led consumption patterns, for instance, have not changed. Despite higher input costs, companies' profits are not significantly under pressure either. And these are just two props on which the economic superstructure stands.

So, what can play the party-pooper? Foreign institutions are probably re-tuning themselves to factors such as rising oil prices and the country's fiscal deficit. These issues may well assume bigger proportions in the days ahead, prompting even bigger chunks of money to move out of India.

In a scenario like this, the investor (and we are particularly referring to the average retail participant here) is likely to be perplexed. He is possibly waiting for the index levels to rise a bit further before he puts in redemption requests. At any rate, redemptions seem to have started happening as some investors are convinced that this is indeed the time to take home profits. Friday's 380-point rise in the Sensex will probably spur further exit.

The one crucial question that may be raised in this context is this: How will the money so redeemed be used? Investors will want to exploit the proceeds sensibly once they get tired of liquid funds and other short term alternatives. They latter, as every one knows, should be no more than temporary parking spaces. And keeping money in these schemes for far too long may not be the wisest thing to do.

Burgeoning AUM

On another front, the latest AUM numbers are just out, lending credence to the belief that fund houses are capable of managing more than ever before. A look at the end-May figures will tell you which AMC has gained and by how much. The top players in terms of asset sizes, in no particular order, are Pru ICICI, UTI, Reliance, HDFC and Franklin Templeton.

The first two now handle over Rs 30,000 crore each. Incidentally, one should finely analyse the June scores - these may tell you whether the current bearishness has actually cost the industry.

Lastly, for the record, a couple of AMCs have re-worked their brands, ones that now showcase their new-found foreign associations.

Deutsche MF has recast itself as DWS, while Chola MF has made known its link with DBS. Some time earlier, Sundaram MF had forged a deal with BNP Paribas, while SBI MF struck a partnership with Societe Generale.

Such changes, and others that have preceded these, makes us wonder whether it is time for preparing a detailed, comprehensive list of reinventions.

Feedback may be sent to nilanjan@thehindu.co.in

More Stories on : Mutual Funds | Outlook | Mutual Confidence

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Monsoon weakens

BSNL wants immediate payment from MTNL

Waiting to bloom

Plan for direct fertiliser subsidy to farmers dropped

Investors waiting for index levels to rise for redemption?

Animal health players make hay as drug cos exit segment

Market may see an end to downtrend

Current situation doesn't bode well for gold

New I-T returns form — Not Saral anymore!

IBM chief Palmisano coming